Oct. Pending and New-Home Sales Still Rising

The Mortgage Corner

Both new and existing-home sales are still thriving, given that conforming fixed rates are still at almost historic lows, in spite of a looming Fed interest rate hike. Why? It’s mainly investors worried about worldwide growth that are parking their money in safe Treasury bonds and mortgage backed securities that determine mortgage rates. It is one reason the housing market is still growing.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.2 percent to 107.7 in October from an upwardly revised 107.5 in September and is now 3.9 percent above October 2014 (103.7). The index has increased year-over-year for 14 consecutive months.

Lawrence Yun, NAR chief economist, says pending sales have plateaued this fall as buyers struggle to overcome a scant number of available homes for sale and prices that are rising too fast in some markets. “Contract signings in October made the most strides in the Northeast, which hasn’t seen much of the drastic price appreciation1 and supply constraints that are occurring in other parts of the country,” he said. “In the most competitive metro areas – particularly those in the South and West – affordability concerns remain heightened as low inventory continues to drive up prices.”  

This follows continued growth in last week’s new-home sales report for October by the National Association of Home Builders. Even though the October report was somewhat disappointing, sales are still up solidly year-to-date.  The Census Bureau reported that new home sales this year, through October, were 430,000, not seasonally adjusted (NSA). That is up 15.7 percent from 371,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for 2015 through October, said Calculated Risk.

image

Graph: Calculated Risk

But this graph doesn’t show the low inventories—at 5.5 months’ of supply—that means demand is high and builders will continue to build more new homes to fill that demand. The largest segment with the color blue in the graph is homes under construction, while red shows completed homes, and green permits for homes not yet built. It’s therefore easy to see construction is booming, which is adding to economic growth.

image

Graph: Calculated Risk

And, indeed, the U.S. Census Bureau of the Department of Commerce just announced that construction spending during September 2015 was estimated at a seasonally adjusted annual rate of $1,094.2 billion, 0.6 percent above the revised August estimate of $1,087.5 billion. The September figure is 14.1 percent above the September 2014 estimate of $959.2 billion.

And spending on residential construction in particular is up 1.0 percent in October for a seventh straight gain and all of them convincing. Year-on-year, residential construction is up 16.6 percent. Private non-residential spending rose 0.6 percent in October with the year-on-year rate at plus 15.3 percent. Public spending is holding down totals with the educational component unchanged in the month though Federal spending did jump, up 19.2 percent for a year-on-year rate of plus 10.7 percent which leads the public components. This report points to solid fourth-quarter contribution from construction.

Need we say more on the need for additional housing to keep housing prices from rising faster?  This should help prospective homebuyers looking for affordable housing. A conforming 30-year fixed rate mortgage is still available at 3.625 percent for slightly more than one origination point, and Hi-balance fixed conforming is at 3.75 percent for the same cost.

So, mortgage rates are holding, even though markets are expecting the Fed to raise its overnight rate this month, which is a sign that there are no signs of inflation, or an overheated economy anytime soon.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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